ICLG Private Client 2020 – India
1 Connection Factors
1.1 To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?
Unless an individual is liable to tax in India and another country, factors such as domicile or habitual residence are not relevant to determine Indian tax liability. If an individual is a dual tax resident, domicile and habitual residence contribute to determining his/her fiscal residence as per the tie-breaker test provided in the relevant Double Taxation Avoidance Agreements (“DTAA”).
1.2 If domicile or habitual residence is relevant, how is it defined for taxation purposes?
Domicile or habitual residence is not defined in the Income Tax Act, 1961 (“ITA”).
1.3 To what extent is residence relevant in determining liability to taxation in your jurisdiction?
Tax incidence in India depends on the tax payer’s residential status. Indian tax residents are taxed on their worldwide income, whereas non-residents and residents but not ordinarily residents (“RNOR”) i.e. individuals transitioning from being non-resident to resident for tax purposes (refer to question 1.4) are liable to pay tax only on the portion of income sourced from India.
1.4 If residence is relevant, how is it defined for taxation purposes?
The residential status of an individual is determined in accordance with the following rules:
· An individual is a resident if such individual: i) is present in India for 182 days or more in a financial year; or ii) is present in India for 60 days or more in a financial year and at least for 365 days during four years immediately preceding the relevant financial year.
· An individual is a RNOR if such individual: i) is a resident in India in the relevant financial year; and ii) is either a non-resident in nine out of the 10 years preceding the relevant financial year, or is present in India for 729 days or less during the seven years preceding the relevant financial year.
· In any other case an individual is a non-resident.
· For non-individuals the ITA provides for different tests to determine residential status based on the type of entity.
1.5 To what extent is nationality relevant in determining liability to taxation in your jurisdiction?
When an Indian citizen residing outside India or person of Indian origin (“PIO”) visits India for more than 60 days in a financial year (1 April – 31 March), their nationality/nation of origin becomes relevant to relax the day count test, which would ordinarily attract Indian tax liability (refer to question 1.4). An Indian citizen or PIO visiting India becomes an Indian tax resident if he is physically present in India for more than 182 days in a fiscal year and for 365 days in the four years preceding the relevant fiscal year. Nationality is also relevant when invoking the non-discrimination clause in DTAAs which guarantees a foreign national tax treatment equal to that of an Indian national.
1.6 If nationality is relevant, how is it defined for taxation purposes?
‘Nationality’ is not been defined in the ITA. However, ‘Indian citizen’ and ‘PIO’, have the following meaning for tax purposes:
· An Indian citizen is an individual who has acquired Indian citizenship by birth, descent, naturalisation or registration as per the provisions of the Citizenship Act, 1955. It must be noted that India does not permit dual citizenship.
· An individual is deemed to be a PIO if such individual or such individual’s parents and/or grandparents were born in undivided India. An individual whose parents/grandparents were born in undivided India and migrated to Pakistan after 1st March 1947 shall not be a PIO unless the parents/grandparents have returned to India under permit for resettlement.
1.7 What other connecting factors (if any) are relevant in determining a person’s liability to tax in your jurisdiction?
India follows the source rule of taxation. Thus, if a person’s income has reasonable nexus with India, it would make them liable to pay tax in India or obligated to withhold and deposit tax in India. This is subject to any favourable tax treatment granted by DTAAs. Based on the following connecting factors some situations where Indian tax liability may be attracted are enumerated below:
|Connecting Factor||Taxable Situations|
|Situs of property||Income earned by a non-resident from immovable property situated in India by virtue of sale or rent/lease.
Income from transfer of offshore assets deriving substantial value from assets situated in India is liable to capital gains tax in India.
|Nature of transaction||Income derived from business operations carried out in India is taxable to the extent attributable to India, subject to favourable tax treatment available under the DTAA.|
|Characteristics of payments||Payment made by a non-resident to another non-resident shall be subject to tax in India if such payment is taxable under the ITA.|
2 General Taxation Regime
2.1 What gift, estate or wealth taxes apply that are relevant to persons becoming established in your jurisdiction?
· In India, gift tax forms a part of the ITA and currently seeks to tax undervalued transfers in the hands of the recipient where the aggregate value of the amount received exceeds the specified thresholds. Gifts received: i) from a relative (as defined in the ITA) or a trust settled for the benefit of relatives; ii) at the time of marriage; or iii) by way of inheritance, are not subject to tax. The Finance (No.2) Act, 2019 (“Finance Act”), brought undervalued transfers made by a resident to a non-resident within the Indian tax net by adding a deeming fiction in the ITA to provide that such income by a non-resident accrues in India. This shall not extend to undervalued transfers between relatives as defined in the ITA.
· India does not levy any estate tax or wealth tax.
2.2 How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?
· Income tax: A tax payer becomes liable to pay income tax in India depending on the nature of the entity and its residential status. If the tax payer is a resident individual, their age also becomes relevant to determine their tax liability. Indian residents are taxed on their worldwide income whereas RNORs and non-residents are taxed on their India-sourced income.
Income tax is levied on a progressive basis. Additionally, a surcharge is payable if the income exceeds certain thresholds prescribed by the ITA.
Since there are several categories of tax payers and different rates applicable to them, we have only provided the tax rates applicable to a resident individual under 60 years of age, trusts, Hindu undivided family, association of persons or body of individuals, whether incorporated or not, or every artificial juridical person, below:
|Total Income||Tax Rate|
|Income does not exceed INR 250,000.||Nil.|
|Income exceeds INR 250,000 but does not exceed INR 500,000.||5% of the amount by which the total income exceeds INR 250,000.|
|Income exceeds INR 500,000 but does not exceed INR 1 million.||INR 12,500 plus 20% of the amount by which the total income exceeds INR 500,000.|
|Income exceeds INR 1 million but does not exceed INR 5 million.||INR 112,500 plus 30% of the amount by which the total income exceeds INR 1 million.|
|Income exceeds INR 5 million but does not exceed INR 10 million.||INR 1,312,500 plus 30% of the amount by which the total income exceeds INR 5 million plus 10% surcharge on income tax.|
|Income exceeds INR 10 million but does not exceed INR 20 million.||INR 2,812,500 plus 30% of the amount by which the total income exceeds INR 10 million plus 15% surcharge on income tax.|
|Income exceeds INR 20 million but does not exceed INR 50 million.||INR 5,812,500 plus 30% of the amount by which the total income exceeds INR 20 million plus 25% surcharge on income tax.|
|Income exceeds INR 50.||INR 14,812,500 plus 30% of the amount by which the total income exceeds INR 50 million plus 37% surcharge on income tax.|
|Please note that:
a. An additional health and educational cess of 4% is payable on tax payable or tax payable increased by the surcharge, as the case may be.
b. The surcharge rates mentioned above reflect the rates as revised by the Finance Act.
· Capital gains tax: Rate of capital gains depends on the nature and holding period of the asset. The above classification is subject to certain exceptions as set out below:
|Capital Asset||Tax Rates||Holding period to be classified as a long-term capital asset|
|Short-term capital asset||Long-term capital asset|
|Listed equity shares
(if the sale takes place on a recognised Indian stock exchange and is subject to Securities Transaction Tax (“STT”))
|15%||10% (only on gains exceeding INR 100,000)*||12 months or more|
|Listed equity shares
(if the sale does not take place on a recognised stock exchange and is not subject to STT)
|30%||10% (without availability of indexation benefit)||12 months or more|
|Unlisted shares||30%||20%||24 months or more|
|Immovable property||30%||20%||24 months or more|
|*LTCG arising from the sale of listed equity shares acquired before 1st February 2018 and sold after 31st March 2018 shall enjoy a limited grandfathering benefit. While computing LTCG on transfer of such shares, the cost of acquisition shall be considered as the higher of: i) the actual cost of acquisition; and ii) fair market value of the asset or the full value of consideration received upon its transfer, whichever is lower.|
2.3 What other direct taxes (if any) apply to persons who become established in your jurisdiction?
Stamp duty, a non-recurring direct tax, is payable on the execution of an instrument evidencing the creation, transfer, limitation or extinguishment of rights/liabilities or recording rights/liabilities of parties by the concerned parties. India has a federal tax system, thus instruments on which the centre and the states can collect stamp duty are specified in the Constitution of India, 1950. Further, stamp duty rates on the same type of instrument may differ from one state to another.
2.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in your jurisdiction?
India’s multi-layered indirect tax regimen was replaced by a comprehensive indirect tax levy – the Goods and Service Tax (“GST”) in July 2017, which is a destination-based tax levied on the supply of goods and services within India. GST subsumed most of the indirect taxes levied in India, i.e. VAT, central sales tax, service tax, excise duty, etc. However, basic customs duty, central excise duty on alcohol for human consumption, central excise/VAT on crude petroleum, high-speed diesel, petrol, natural gas, aviation turbine fuel are still in effect.
2.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in your jurisdiction?
The following are some of the relevant specific anti-avoidance rules in the ITA:
· Disregarding transfers to trusts: If property is settled into a trust, whether revocable or irrevocable, and the settlor or a contributor retains the power to control the trust property, the tax authorities may treat the trust as a revocable trust and the income of the trust shall be taxable in the hands of the settlor or contributor.
· Expansion of the gift tax: Finance Act, 2016, introduced gift tax provisions applicable to all persons receiving money or property without or for inadequate consideration, subject to a minimum threshold specified in the ITA. Transfers made to relatives (as defined in the ITA) and settlements into trusts for the benefit of relatives have been specifically excluded from the ambit of these provisions.
· Dividend Distribution Tax (“DDT”) and buy-back tax impacting shareholders and promoters of closely held companies: DDT is payable on loans and advances paid by a company to its shareholders, as such distributions are deemed to be dividends and are taxable at 30% which is higher than the rate of tax applicable to regular dividends.
2.6 Is there any general anti-avoidance or anti-abuse rule to counteract tax advantages?
The General Anti-Avoidance Rule (“GAAR”) empowers tax authorities to deny tax benefits availed of by impermissible avoidance arrangements. An impermissible avoidance arrangement is an arrangement whose main purpose was to avail of tax benefits and which: i) creates rights or obligations not ordinarily created between persons dealing at arm’s length; ii) directly or indirectly results in the misuse or abuse of the provisions of the ITA; iii) lacks or is deemed to lack commercial substance (as defined in the ITA); or iv) is entered into or carried out by means or in a manner not ordinarily employed for bona fide purposes.
GAAR gives the tax authorities wide powers such as the ability to deny tax benefits available to a tax payer under DTAAs. Further, where an arrangement is perceived to be an impermissible avoidance arrangement it is presumed to be so unless the tax payer proves otherwise. However, GAAR is only applicable on arrangements where the tax benefit exceeds INR 30 million in the relevant financial year.
2.7 Are there any arrangements in place in your jurisdiction for the disclosure of aggressive tax planning schemes?
No, there are not.
3 Pre-entry Tax Planning
3.1 In your jurisdiction, what pre-entry estate, gift and/or wealth tax planning can be undertaken?
Since India does not levy estate tax or wealth tax, pre-entry estate tax or wealth tax planning need not be undertaken. Gift tax is levied in India via the ITA and not a separate legislation. Therefore, a separate pre-entry gift tax planning is not required (refer to question 3.2).
Pre-entry planning could be undertaken from an exchange control perspective where assets generated outside India when the individual was a non-resident, are contemplated to be kept outside India after the individual becomes an Indian resident. Please note that the definition of a resident as per the ITA and exchange control regulations i.e. the Foreign Exchange and Management Act (“FEMA”) are not the same. As per FEMA, an individual is an Indian resident if they spend more than 182 days in India in the previous year with the intention of residing in India for an indefinite period of time. Whereas, if an individual satisfies the physical presence test laid down in the ITA they are considered to be an Indian resident irrespective of their intention of stay (refer to question 1.4).
3.2 In your jurisdiction, what pre-entry income and capital gains tax planning can be undertaken?
In India residents are liable to pay tax on their worldwide income. RNORs and non-residents are liable to pay tax in India only on their India-sourced income. Therefore, it is not necessary to undertake pre-entry income and capital gains tax planning to ensure that income generated prior to becoming resident in India in foreign jurisdiction is not subject to tax in India. Further, the RNOR category prevents such individuals from a potential double taxation event during their transition period.
3.3 In your jurisdiction, can pre-entry planning be undertaken for any other taxes?
Customs duty and GST are the predominant indirect taxes payable by a business where the goods or services are to be consumed within India (refer to question 4.2). Therefore, pre-entry indirect tax planning with respect to import and supply of goods and services within India could be undertaken.
4 Taxation Issues on Inward Investment
4.1 What liabilities are there to tax on the acquisition, holding or disposal of, or receipt of income from investments in your jurisdiction?
· Acquisition: Income and capital gains tax is generally not payable on acquisition of capital assets. However, in some of the following instances, tax may be payable on the acquisition of capital assets for investment:
i. STT is payable on purchase of shares listed on a recognised stock exchange.
ii. Residents are mandated to withhold tax when they purchase assets from a non-resident prior to paying the non-resident seller.
· Holding: Tax liability during the holding period arises in inter-alia the following limited situations:-
i. DDT is payable by the company declaring the dividend on behalf of shareholders during the period the share is held by them.
ii. When real estate has been rented out, tax is payable on the rent received.
iii. If an individual or a Hindu undivided family owns more than two residential properties, the tax payer is liable to pay rent on the estimated annual rent arising or deemed to arise to the owner if the property was let out, from any other than two properties which are lying vacant or periodically used.
· Disposal: Capital gains tax is generally payable on the disposal of an asset, irrespective of whether it was held as an investment, at a concessional rate (refer to question 2.2). When a capital gain arises to a non-resident, he may avail of the beneficial tax rates prescribed by the relevant DTAA.
4.2 What taxes are there on the importation of assets into your jurisdiction, including excise taxes?
Customs duty is levied by the Central Government on the import of goods into India. In addition to customs duty, Integrated GST is payable if imported goods are supplied within India.
4.3 Are there any particular tax issues in relation to the purchase of residential properties?
Income and capital gains tax: If a residential property is purchased from a non-resident, the buyer is required to withhold tax at the specified rate and deposit it with the tax authorities. A withholding tax of 1% is deductible on purchase of residential property in all other cases. However, roll-over benefits and capital gains tax exemptions are available when re-investing in residential property.
Stamp duty: The purchaser is usually mandated to pay a stamp duty of 5%–7% on the market value of the property depending on the state in which the property is situated.
5 Taxation of Corporate Vehicles
5.1 What is the test for a corporation to be taxable in your jurisdiction?
A company is liable to tax in India if the corporation is an Indian resident or its business income has reasonable nexus with India.
· Residential status: A company is a resident if: i) it is incorporated or registered in India; or ii) it has its place of effective management (“POEM”) in India.
POEM under the ITA is defined as “a place where the key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made”. These provisions are applicable to companies having turnover/gross receipts of more than INR 500 million. The Central Board of Direct Taxes (“CBDT”) has issued guidelines which specify other factors to determine POEM.
· India-sourced income: Business profits of a foreign company arising from a presence in India is liable to tax in India. As per the DTAAs, such liability only arises when the foreign company has a physical presence in India, i.e. a permanent establishment. Income of foreign companies sourced from India by virtue of a digital presence is also liable to tax in India. Thus, if a non-resident has a significant economic presence in India, it shall constitute a business connection in India and the income generated shall be subject to tax in India.
5.2 What are the main tax liabilities payable by a corporation which is subject to tax in your jurisdiction?
Corporations in India are subject to the following tax liabilities:
· Income tax: Depending on whether the corporation is classified as a domestic company or foreign company, it shall be liable to pay income tax at the following rates:
i. A domestic company is taxed at a flat rate of 30% of its total income. However, it may be taxed at 25% where its turnover or the gross receipt in the financial year 2017–18 does not exceed INR 4 billion.
Surcharge is levied at 7% on the tax payable if the income exceeds INR 10 million but does not exceed INR 100 million and at 12% on tax payable if the income exceeds INR 100 million.
ii. A foreign company is taxed at a flat rate of 40%. Surcharge is levied at 2% on the amount of income tax if net income exceeds INR 10 million but does not exceed INR 100 million and at 5% on the amount of income tax if net income exceeds INR 100 million.
Apart from the income tax and surcharge, health and education cess is levied at 4% of income tax.
· Minimum alternate tax: Domestic companies and foreign companies (subject to certain exceptions) are liable to pay minimum alternate tax (“MAT”). If the tax payable as ordinarily calculated is lower than 18.5% of the book profits of the company (method of calculation prescribed in the ITA), the company is liable to pay MAT equivalent to 18.5% of the book profits. The difference between the ordinary tax liability and MAT liability is available as MAT credit and can be carried forward for the succeeding 15 financial years.
· Withholding taxes: Companies are liable to deduct tax at source before making payment to a non-resident which is taxable in India and payments to residents in the nature of salary, interest, royalty, etc.
5.3 How are branches of foreign corporations taxed in your jurisdiction?
Branches of non-resident companies are taxed at 40% on their India-sourced income.
6 Tax Treaties
6.1 Has your jurisdiction entered into income tax and capital gains tax treaties and, if so, what is their impact?
Yes, India has entered into approximately 97 DTAAs, 19 Tax Information Exchange Agreements (“TIEA”), eight Limited Agreements, six Limited Multilateral Agreements and has approximately 75 Bilateral Investment Treaties, which are presently in force, with a view to facilitate exchange of information and promote economic relations with other countries. Further, in accordance with the Base Erosion and Profit Shifting (“BEPS”) project, India has also ratified the Multilateral Instrument in June 2019 (“MLI”).
The tax treaties are also aimed at combatting double taxation of the same income by allocating taxing rights to the relevant jurisdictions. As of 2017, India has re-negotiated tax treaties with Mauritius, Singapore and Cyprus to expand its tax base by taxing capital gains arising from sale of shares of an Indian company, in India, i.e. the source country. Prior to the amendment, capital gains were taxed in the country of the tax payer’s residence.
6.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?
DTAAs entered into by India follow a combination of the OECD Model and the UN Model. The more recent tax treaties include service permanent establishment clauses – a provision commonly found in the UN Model Tax Treaties.
6.3 Has your jurisdiction entered into estate and gift tax treaties and, if so, what is their impact?
India does not have estate and gift tax treaties with jurisdictions other than the UK. This treaty has limited impact, owing to the abolition of estate duty in India in 1985.
6.4 Do the estate or gift tax treaties generally follow the OECD or another model?
This is not applicable.
7 Succession Planning
7.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in your jurisdiction?
In India, law governing testamentary and intestate succession mainly depends on the nature of property. Succession of immovable property is governed by the law of the country where the property is situated. Succession to movable property is governed by the law of the country where the deceased was last domiciled. If property situated in India is bequeathed under a foreign testamentary instrument, the ISA allows the property to devolve as per the foreign instrument, if it is duly proved in the foreign country, by granting an ancillary probate. Please note that although the testamentary instrument is proved in a foreign court, Indian laws shall govern the devolution of immovable properties situated in India.
7.2 Are there particular rules that apply to real estate held in your jurisdiction or elsewhere?
Real estate held in India is governed by Indian land laws and succession laws irrespective of the testator’s domicile (refer to question 7.1). If real estate situated in India is to be inherited by a non-resident, the transfer is also subject to FEMA.
7.3 What rules exist in your jurisdiction which restrict testamentary freedom?
A will-writer (testator/testatrix) has complete testamentary freedom to dispose their property as they deem fit through a will, with the exception of a Muslim will-writer and a will-writer residing in the Indian State of Goa.
· Restriction on Muslims: Succession to property of Muslims in India is governed by their customary personal laws. Muslims are permitted to will away only one third of their estate and the balance shall devolve as per the customary forced heirship laws.
· Restrictions on Goan residents: Unless specified otherwise expressly in the will, resident of Goa are not permitted to will away more than half of their property. The remaining half shall devolve on the will-writer’s spouse.
8 Trusts and Foundations
8.1 Are trusts recognised/permitted in your jurisdiction?
Yes, trusts are recognised and permitted in India. India broadly recognises two kinds of trusts, public trusts (charitable or religious) and private (family or investment) trusts. For this question only private trusts have been analysed.
Private trusts may be set up during a person’s lifetime or under their will, i.e. a testamentary trust. Property initially settled into a trust may be movable property or immovable property. Where the initial settled property is immovable property the instrument creating the trust must be in writing and registered. It also attracts a higher stamp duty. A trust may be set up in the following forms:
i. Revocable trust: Can be terminated by the settlor at any time during their lifetime.
ii. Irrevocable trust: Cannot be terminated by the settlor and shall terminate when the object or term of the trust, has been completed.
Trusts are further divided into the following categories:
i. Discretionary trust: Trustees have the discretion to decide the frequency and quantum of the trust fund to be distributed to the beneficiaries.
ii. Determinate trust: Trustees have little to no discretion in determining the entitlement of the beneficiaries. The entitlement is fixed by the settlor at the time of settlement of the trust.
8.2 How are trusts/settlors/beneficiaries taxed in your jurisdiction?
Trusts are treated as fiscally transparent entities in India. The following is a breakdown of a trust’s tax liability as per the ITA:
· Tax liability of trusts: Income of a trust is taxed in the hands of the trustee or beneficiary depending on the nature of the trust.
· Tax liability of trustees and beneficiaries: Trustees are representative assessees of a trust and their obligation depends on the nature of the beneficiaries. Therefore, if the beneficiaries’ shares are not specified, the income of the trust is taxable at the maximum marginal rate in the hands of the trustee. However, capital gains are taxed at a concessional rate. Whereas, if the beneficiaries and their shares are specific, income of the trust is taxed in the hands of the beneficiaries as per the status of the relevant beneficiary (refer to question 2.2).
· Tax liability of settlors: If the trust is a revocable trust the settlor continues to be taxed on the income of the trust.
Please note that income from property settled in a trust where the beneficiaries of the trust are relatives of the settlor/contributor is not taxable in the hands of such beneficiaries.
8.3 How are trusts affected by succession and forced heirship rules in your jurisdiction?
A trust settled during the settlor’s lifetime is not affected by succession or forced heirship laws. Testamentary trusts shall be subject to the limited restrictions on testamentary freedom applicable to Muslims and residents of the Indian state of Goa (refer to question 7.3).
8.4 Are private foundations recognised/permitted in your jurisdiction?
Private foundations are not recognised in India.
8.5 How are foundations/founders/beneficiaries taxed in your jurisdiction?
This is not applicable.
8.6 How are foundations affected by succession and forced heirship rules in your jurisdiction?
This is not applicable.
9 Matrimonial Issues
9.1 Are civil partnerships/same-sex marriages permitted/recognised in your jurisdiction?
Civil partnerships and same-sex marriages are not recognised in India. However, with respect to a man and a woman cohabiting for a long time, the Supreme Court of India has held the following:
i. A man and woman cohabiting for a long time will be presumed as legally married under the law unless proved otherwise.
ii. A woman who has been in a civil partnership similar to a marriage is entitled to alimony.
iii. A woman living-in with a man as a civil partner has a right to reside in a shared household, whether or not she has any right or title to the property.
iv. A child born out of wedlock in a civil partnership is conferred the status of a legitimate child and is entitled to inheritance rights in respect of the self-acquired/personal property of the parents in accordance with the applicable personal laws.
It is pertinent to note that in the case of Navtej Singh Johar & Ors. v. Union of India [Writ petition (criminal) no. 76 of 2016], the Supreme Court of India decriminalised same-sex consensual relations. This decision did not deal with equal rights of same-sex couples in relation to marriage, divorce or property-related matters.
9.2 What matrimonial property regimes are permitted/recognised in your jurisdiction?
· Portuguese civil law as applicable in the state of Goa recognises the concept of community property wherein both spouses are considered joint owners of the property acquired during the marriage.
· Muslim customary law recognises the concept of “mehr” or “dower” which is a sum of money or property a wife is rightfully entitled to receive at the time of marriage and in some cases, at the time of divorce.
· Hindu law recognises the concept of “stridhan” which is property that a woman receives at the time of her marriage or at any time during her marriage. Stridhan is recognised as a married woman’s absolute property. Hindu succession law also provides that, on the death of a female Hindu, any property inherited by her from parent(s) shall devolve on them if she does not have any children or grand children at the time of her death.
· The Married Women’s Property Act, 1874 provides that a married woman’s earnings before and after her marriage are absolutely her property.
9.3 Are pre-/post-marital agreements/marriage contracts permitted/recognised in your jurisdiction?
Pre-/post-marital agreements/marriage contracts are not expressly recognised in India. Depending on the personal and customary law applicable to the parties, courts may enforce a pre-/post-marital agreement/contract if it: i) fulfils the essentials of a valid contract (as per the Indian Contract Act, 1872); and ii) it is not opposed to public policy.
9.4 What are the main principles which will apply in your jurisdiction in relation to financial provision on divorce?
Irrespective of the applicable personal laws, generally in a divorce, a spouse is entitled to maintenance and/or alimony. Jointly owned assets may be split up or realised and the proceeds may be split equally. Further, during the pendency of divorce proceedings, a spouse is also entitled to alimony pendente lite.
10 Immigration Issues
10.1 What restrictions or qualifications does your jurisdiction impose for entry into the country?
Every person who is not an Indian citizen must hold a valid national passport or any other internationally recognised travel document proving their nationality and identity bearing their photograph and a valid Indian visa granted by an authorised Indian representative abroad. The type of visa would depend on the purpose of visit, i.e. diplomatic, student, business, tourist, etc. Further, an Overseas Citizen of India (“OCI”) card may be issued to persons of Indian origin or relatives of Indian citizens, which permits them to enter India without a visa.
10.2 Does your jurisdiction have any investor and/or other special categories for entry?
Yes, India welcomes foreign nationals undertaking to invest more than INR 100 million within 18 months or INR 250 million within 36 months through the Foreign Direct Investment route. Such foreign investors are granted a B-4 visa for the initial duration of 18 months or 36 months as the case may be and are eventually granted Permanent Residency Status (“PRS”) for a period of 10 years (extendable to another 10 years) with a multiple entry visa provided their investment generates employment for at least 20 Indian residents every financial year. Any foreign national may avail of this scheme to enter India as an investor provided he is not a Pakistani citizen or a third country national of Pakistani origin.
10.3 What are the requirements in your jurisdiction in order to qualify for nationality?
As per the Citizenship Act, 1955, Indian citizenship may be acquired by birth, descent, registration or naturalisation. Briefly, the procedure for acquisition of citizenship is as follows:
· By birth: An individual born in India on or after 3rd December 2004 is considered to be a citizen of India if both the parents are Indian citizens or one parent is an Indian citizen and the other is not an illegal migrant at the time the individual’s birth.
· By descent: An individual person born outside India on or after 3rd December 2004 shall be an Indian citizen, if the parents declare that the minor does not hold passport of another country and such individual’s birth is registered at an Indian consulate within one year of the date of birth and after the expiry of one year from the date of birth with the permission of the Central Government.
· By registration: Individuals who meet the following criteria are eligible to apply for citizenship:
a. PIOs who are ordinarily resident in India for seven years before making the application.
b. PIOs who are ordinarily resident in any country or place outside undivided India.
c. Persons who are married to a citizen of India and who are ordinarily resident in India for seven years.
d. Minor children both of whose parents are Indian citizens.
e. Persons of full age both of whose parents are registered as citizens of India.
f. Persons of full age both or either of whose parents were earlier citizen(s) of Independent India and residing in India for one year immediately before making application.
g. Persons of full age and capacity who have been registered as an OCI for five years and residing in India for one year.
· By Naturalisation: Indian citizenship by naturalisation can be acquired by a foreigner who is not illegal migrant who is ordinarily resident in India for 12 years.
10.4 Are there any taxation implications in obtaining nationality in your jurisdiction?
No, as India taxes on the basis of residence and not nationality.
10.5 Are there any special tax/immigration/citizenship programmes designed to attract foreigners to become resident in your jurisdiction?
No, there are no such provisions.
11 Reporting Requirements/Privacy
11.1 What automatic exchange of information agreements has your jurisdiction entered into with other countries?
Apart from the MLI and the DTAAs which contain clauses facilitating automatic exchange of information and entering into TIEAs with 19 countries, India has taken the following steps to enable automatic exchange of information with various countries:
· India has ratified the Convention on Mutual Administrative Assistance on Tax Matters. Further to the ratification, India implemented the adopted the Common Reporting Standards (“CRS”) and implemented it by making necessary legislative changes in 2014.
· India has implemented Action 13 of the BEPS project by including provisions of country-by-country reporting for large tax payers.
· India has also signed the Inter-Governmental Agreement with the United States of America to implement the Foreign Account Tax Compliance Act (“FATCA”) and made relevant legislative changes to implement the same.
11.2 What reporting requirements are imposed by domestic law in your jurisdiction in respect of structures outside your jurisdiction with which a person in your jurisdiction is involved?
The following are the reporting requirements imposed by India with respect to structures outside India:
· Indirect transfer of Indian assets: Subject to the conditions specified in the ITA, transfer of assets situated outside India which derive substantial value from underlying assets in India is to be declared in accordance with the provisions of the ITA.
· Filing of tax returns: A resident (refer to questions 1.4 and 5.1) when filing tax returns is liable to disclose foreign assets held by him in Schedule FA which forms a part of the relevant income tax return form. Assets to be disclosed include foreign bank accounts, financial interest, immovable property held abroad, foreign accounts in which individual has signing authority, offshore trusts and any other capital assets held by an Indian resident outside India.
· Significant beneficial interest: As per section 90 of the Companies Act, 2013 read with the Companies (Significant Beneficial Owners) Rules, 2018 and amended by the Companies (Significant Beneficial Owners) Amendment Rules 2019 (“SBO Rules”), Indian companies are mandated to maintain a register containing information of significant beneficial owners (“SBO”) i.e. shareholders who are individuals and themselves or together with other persons (including companies, LLPs, partnerships, trusts etc.) hold 10% or more shares, voting rights, right to receive divided in the Indian company or can exercise significant influence or control in the Indian company. Depending on the holding structure, SBO Rules prescribe various tests to determine the SBO depending on the nature of the holding entity.
For example, if the rights or entitlements to qualify as an SBO are held by a body corporate, the individual holding the majority stake of that body corporate shall be disclosed as the SBO. If the rights or entitlements to qualify as an SBO are held by a trust, depending on the nature of the trust the SBO shall be the settlor, if the trust is a revocable trust; the trustees, if it is a discretionary trust; or the beneficiaries, if it is a determinate trust.
11.3 Are there any public registers of owners/beneficial owners/trustees/board members of, or of other persons with significant control or influence over companies, foundations or trusts established or resident in your jurisdiction?
Yes, in the two instances set out below, details of persons controlling companies or trusts are mandated to be maintained in the public domain:
· The Indian Trust Act, 1882 read with the Registration Act, 1908 provides that the instrument creating a trust shall be registered if it is initially settled with immovable property. Details of the instrument are maintained in a register at the relevant Registrar’s office.
· Indian companies shall maintain a register of SBOs at the registered office of the company to be inspected by its members for a fee (refer to question 11.2).
Anand Shah, Senior Partner
Khushboo Damakia, Associate